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Hanging Trade-off at Risk and Its Implication in Ethiopian Commercial Banks

Received: 18 October 2018     Accepted: 9 November 2018     Published: 18 December 2018
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Abstract

Financing mix explains the way a firm finances its asset. Decision on banks financing mix is one of the challenging and debatable issues, but it is also a vital decision for their profitability and continued survival. By considering the imperative role of banks in the economy, this study was conducted to examine the effect of financing mix on financial performance of Ethiopian commercial banks for the period of 2005-2016. Out of eighteen (18) banks operating in Ethiopia, nine (9) of them were used in the study, considering the availability of data in the study period. Three models were used based on measure of financial performance; net interest margin, return on capital employed and return on equity. Whereas, debt to asset and debt to equity are used to measure financing mix and size was used as a control variable. The study adopted explanatory research design with quantitative research approach. The data collected from secondary source (audited annual reports) of sampled firms was analyzed through multiple regression technique, specifically, generalized linear model. The study revealed that financial performance indicators were negatively and significantly affected by capital structure proxies except return on equity, which was positively and significantly affected by debt to equity. The overall results indicated that financial performance of Ethiopian commercial banks was adversely affected by their financing decision and are not at tradeoff as well, which may lead to future bankruptcy.

Published in Journal of Finance and Accounting (Volume 6, Issue 6)
DOI 10.11648/j.jfa.20180606.11
Page(s) 134-140
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2018. Published by Science Publishing Group

Keywords

Financing Mix, Financial Performance, Trade-off Theory, Bankruptcy

References
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Cite This Article
  • APA Style

    Sitina Akmel Surur, Kirubel Asegdew Yimenu. (2018). Hanging Trade-off at Risk and Its Implication in Ethiopian Commercial Banks. Journal of Finance and Accounting, 6(6), 134-140. https://doi.org/10.11648/j.jfa.20180606.11

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    ACS Style

    Sitina Akmel Surur; Kirubel Asegdew Yimenu. Hanging Trade-off at Risk and Its Implication in Ethiopian Commercial Banks. J. Finance Account. 2018, 6(6), 134-140. doi: 10.11648/j.jfa.20180606.11

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    AMA Style

    Sitina Akmel Surur, Kirubel Asegdew Yimenu. Hanging Trade-off at Risk and Its Implication in Ethiopian Commercial Banks. J Finance Account. 2018;6(6):134-140. doi: 10.11648/j.jfa.20180606.11

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  • @article{10.11648/j.jfa.20180606.11,
      author = {Sitina Akmel Surur and Kirubel Asegdew Yimenu},
      title = {Hanging Trade-off at Risk and Its Implication in Ethiopian Commercial Banks},
      journal = {Journal of Finance and Accounting},
      volume = {6},
      number = {6},
      pages = {134-140},
      doi = {10.11648/j.jfa.20180606.11},
      url = {https://doi.org/10.11648/j.jfa.20180606.11},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jfa.20180606.11},
      abstract = {Financing mix explains the way a firm finances its asset. Decision on banks financing mix is one of the challenging and debatable issues, but it is also a vital decision for their profitability and continued survival. By considering the imperative role of banks in the economy, this study was conducted to examine the effect of financing mix on financial performance of Ethiopian commercial banks for the period of 2005-2016. Out of eighteen (18) banks operating in Ethiopia, nine (9) of them were used in the study, considering the availability of data in the study period. Three models were used based on measure of financial performance; net interest margin, return on capital employed and return on equity. Whereas, debt to asset and debt to equity are used to measure financing mix and size was used as a control variable. The study adopted explanatory research design with quantitative research approach. The data collected from secondary source (audited annual reports) of sampled firms was analyzed through multiple regression technique, specifically, generalized linear model. The study revealed that financial performance indicators were negatively and significantly affected by capital structure proxies except return on equity, which was positively and significantly affected by debt to equity. The overall results indicated that financial performance of Ethiopian commercial banks was adversely affected by their financing decision and are not at tradeoff as well, which may lead to future bankruptcy.},
     year = {2018}
    }
    

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  • TY  - JOUR
    T1  - Hanging Trade-off at Risk and Its Implication in Ethiopian Commercial Banks
    AU  - Sitina Akmel Surur
    AU  - Kirubel Asegdew Yimenu
    Y1  - 2018/12/18
    PY  - 2018
    N1  - https://doi.org/10.11648/j.jfa.20180606.11
    DO  - 10.11648/j.jfa.20180606.11
    T2  - Journal of Finance and Accounting
    JF  - Journal of Finance and Accounting
    JO  - Journal of Finance and Accounting
    SP  - 134
    EP  - 140
    PB  - Science Publishing Group
    SN  - 2330-7323
    UR  - https://doi.org/10.11648/j.jfa.20180606.11
    AB  - Financing mix explains the way a firm finances its asset. Decision on banks financing mix is one of the challenging and debatable issues, but it is also a vital decision for their profitability and continued survival. By considering the imperative role of banks in the economy, this study was conducted to examine the effect of financing mix on financial performance of Ethiopian commercial banks for the period of 2005-2016. Out of eighteen (18) banks operating in Ethiopia, nine (9) of them were used in the study, considering the availability of data in the study period. Three models were used based on measure of financial performance; net interest margin, return on capital employed and return on equity. Whereas, debt to asset and debt to equity are used to measure financing mix and size was used as a control variable. The study adopted explanatory research design with quantitative research approach. The data collected from secondary source (audited annual reports) of sampled firms was analyzed through multiple regression technique, specifically, generalized linear model. The study revealed that financial performance indicators were negatively and significantly affected by capital structure proxies except return on equity, which was positively and significantly affected by debt to equity. The overall results indicated that financial performance of Ethiopian commercial banks was adversely affected by their financing decision and are not at tradeoff as well, which may lead to future bankruptcy.
    VL  - 6
    IS  - 6
    ER  - 

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Author Information
  • Department of Accounting and Finance, Wolkite University, Wolkite, Ethiopia

  • Department of Accounting and Finance, Wolkite University, Wolkite, Ethiopia

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